German business morale rises to a record high

German business confidence unexpectedly rose in June to a record high, as strong domestic consumption and robust exports combined to make company executives increasingly upbeat about the growth outlook for Europe’s largest economy.

The Munich-based Ifo economic institute said its business climate index, based on a monthly survey of some 7,000 firms, rose to 115.1 from 114.6 in May.

“Sentiment among German businesses is jubilant,” Ifo chief Clemens Fuest said in a statement.

“Companies were significantly more satisfied with their current business situation this month. They also expect business to improve. Germany’s economy is performing very strongly.”

Ifo economist Klaus Wohlrabe said neither Brexit nor the countdown to federal elections in September had affected business morale, though the election could have an impact in August. Private consumption was a key growth driver and there was still room for expansion in exports, he said.

Growth in the economy, Europe’s largest, accelerated to 0.6%, quarter-on-quarter, in the first three months of 2017. Mr Wohlrabe expected 0.7% in the second quarter.

Andreas Scheuerle, economist at DekaBank, said some German business executives were at risk of getting carried away.

“Even in the first quarter, business sentiment... was much too optimistic compared to actual developments. In the second quarter, this trend was further strengthened. This will correct at some point, but then we should not make the mistake of interpreting this as the way to the next recession.”

Germany’s central bank and leading economic institutes have raised their estimates for German GDP growth for this year and next.

The Bundesbank raised its growth forecasts this month. The government is sticking to its cautious outlook for GDP growth of 1.5% in 2017 and 1.6% in 2018.


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